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Framing effect

The same fact changes your decision depending on how it is worded - a 40 percent win rate and six losses in ten feel completely different.

Framing changes behaviour without changing information. A strategy described as winning four trades in ten sounds broken; described as averaging 0.3R per trade it sounds like a business. Both can be the same system.

Markets are framed for you constantly. A stock is down 30 percent from its high, or up 50 percent from last year. A prop firm charges a fee, or offers an evaluation. A loss is a stop-out, or the cost of information.

The defence is to restate every important decision in at least two frames, including the one that is least flattering, and to keep a fixed set of metrics that do not move when the wording does.

Related: narrow-framing, reference-point, anchoring-bias, win-rate

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